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Military Expenditure and Economic Growth in China

Author

Listed:
  • Sampson Agyapong Atuahene
  • Kong Yusheng
  • Geoffrey Bentum-Micah
  • Evans Garti
  • Alexender Baah

Abstract

Purpose: In this study, we contribute to the existing literature by examining the relationship between military spending changes and economic growth in China over the period 1995 to 2018 using Granger causality test. We would also explore short and long run relationship between GDP growth and military expenditure of China. Approach/Methodology/Design: Data used in this study are yearly data covering the period of 1995 to 2018 and the variables are Gross Domestic product (GDP) and Military Expenditure (ME). Data were collected from World Bank. GDP is at 2010 constant US prices and ME is expressed as a percentage of economic growth. All variables are transformed into the natural logarithmics to obtain growth effects. Findings: Using causality test, the causal relationship between the variables revealed that the alternative hypothesis should be accepted which is lagged GDP variable (proxy of economic growth) does not cause ME in our first VAR Granger causslity Wald test model. However, we discover and verified that there is one-way causality from economic growth to military spending, but no causality from military spending to economic growth is observed in this study. China’s positive economic growth can finance its military expenditure. Practical Implications: The study will contribute positively to the understanding of influence of GDP on military expenditure for emerging and developed ecconomies. Originality/value: This study innovates by using Cointegration, E-granger and Granger causality test to find out economic growth causing military expenditure in developing economies like China.

Suggested Citation

  • Sampson Agyapong Atuahene & Kong Yusheng & Geoffrey Bentum-Micah & Evans Garti & Alexender Baah, 2020. "Military Expenditure and Economic Growth in China," International Journal of Finance, Insurance and Risk Management, International Journal of Finance, Insurance and Risk Management, vol. 10(2), pages 3-16.
    • Handle: RePEc:ers:ijfirm:v:10:y:2020:i:2:p:3-16
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    More about this item

    Keywords

    GDP; military spending; economic growth; Granger causality.;
    All these keywords.

    JEL classification:

    • H5 - Public Economics - - National Government Expenditures and Related Policies
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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